Key Takeaways
- • The SEC Division of Investment Management issued a no-action letter on September 30, 2025, clarifying that state-chartered trust companies qualify as permissible custodians for crypto assets under the Investment Advisers Act and Investment Company Act of 1940.
- • Registered investment advisers and regulated funds can now maintain crypto assets and related cash equivalents with state trust companies without regulatory ambiguity, resolving a longstanding compliance question in the industry.
- • The no-action letter does not expand the definition of permissible custodians but rather provides staff guidance that state trust companies operating under established regulatory frameworks already meet existing custody rule requirements.
- • Registered advisers and regulated funds retain the option to use alternative permissible custodians, including national banks and state banks, for crypto asset custody without regard to this relief.
- • This development addresses industry concerns that the custody rule was overly complex and created unnecessary obstacles for SEC-registered entities seeking to offer or maintain crypto asset services.
Summary
The SEC's Division of Investment Management issued a significant no-action letter on September 30, 2025, providing regulatory clarity on a critical compliance issue for investment advisers and regulated funds managing crypto assets. The letter states that the division would not recommend enforcement action against registered advisers or regulated funds that maintain crypto assets and related cash or cash equivalents with certain state-chartered financial institutions designated as "State Trust Companies."
The core issue addressed by the no-action letter centered on definitional ambiguity regarding whether state trust companies qualify as "banks" under the custody provisions of the Investment Advisers Act and the Investment Company Act of 1940. For an extended period, registered advisers and regulated funds faced uncertainty about whether their chosen custodian for crypto assets—often the only available option—was compliant with federal custody requirements. The no-action letter resolves this compliance question by confirming that state trust companies operating within appropriate regulatory frameworks meet the definition of permissible custodians.
The letter's scope is carefully defined: it applies to state trust companies operating within regulatory frameworks that ensure investor protection and are materially similar to those governing other approved custodian types. Importantly, the staff's position does not expand the universe of permissible custodians under existing law. Rather, the division contends that state trust companies already qualified as permissible custodians, and the letter formalizes this interpretation to provide industry clarity.
The relief follows earlier SEC actions addressing crypto asset regulation. In March 2026, the SEC issued an interpretation clarifying how federal securities laws apply to certain crypto assets, and subsequent rulemaking proposals sought to clarify the custody framework for digital assets. The custody rule had previously been flagged as overly complex and creating undue barriers to compliance, particularly for broker-dealers and investment advisers seeking to offer crypto custody services.
This development provides meaningful relief for market participants while maintaining the regulatory boundaries established by the 1940 Act and Advisers Act. Registered advisers and regulated funds retain flexibility in custodian selection, including the option to use national banks, state banks, and other qualified custodians for crypto asset safekeeping.
The core issue addressed by the no-action letter centered on definitional ambiguity regarding whether state trust companies qualify as "banks" under the custody provisions of the Investment Advisers Act and the Investment Company Act of 1940. For an extended period, registered advisers and regulated funds faced uncertainty about whether their chosen custodian for crypto assets—often the only available option—was compliant with federal custody requirements. The no-action letter resolves this compliance question by confirming that state trust companies operating within appropriate regulatory frameworks meet the definition of permissible custodians.
The letter's scope is carefully defined: it applies to state trust companies operating within regulatory frameworks that ensure investor protection and are materially similar to those governing other approved custodian types. Importantly, the staff's position does not expand the universe of permissible custodians under existing law. Rather, the division contends that state trust companies already qualified as permissible custodians, and the letter formalizes this interpretation to provide industry clarity.
The relief follows earlier SEC actions addressing crypto asset regulation. In March 2026, the SEC issued an interpretation clarifying how federal securities laws apply to certain crypto assets, and subsequent rulemaking proposals sought to clarify the custody framework for digital assets. The custody rule had previously been flagged as overly complex and creating undue barriers to compliance, particularly for broker-dealers and investment advisers seeking to offer crypto custody services.
This development provides meaningful relief for market participants while maintaining the regulatory boundaries established by the 1940 Act and Advisers Act. Registered advisers and regulated funds retain flexibility in custodian selection, including the option to use national banks, state banks, and other qualified custodians for crypto asset safekeeping.
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